Indian banks are accelerating their efforts to attract foreign currency non-resident bank (FCNR-B) deposits, especially through leveraged schemes, as the Reserve Bank of India (RBI) advanced the closure of a special swap window to August 31. This move has created a rush among depositors and banks to finalize transactions. As of August 14, FCNR-B deposits had brought in $52 billion, and market participants expect total inflows to reach around $75 billion by the end of August, with $20 billion potentially coming in the remaining eight working days.
Axis Bank, India’s third-largest private sector lender, has notably increased its interest rate on FCNR-B deposits above $1 million to 6.40 percent for a three-to-five-year tenor, effective August 17. This makes it the highest offering among large private banks, surpassing HDFC Bank and ICICI Bank which offer 6.25 percent, and SBI at 6 percent. This rate hike by Axis Bank, which had mobilized nearly $1.59 billion in net FCNR(B) deposits as of July 31, is expected to prompt other banks to follow suit to intensify mobilization efforts.
The demand for leveraged deposits is significantly high, with some banks having waiting lists of depositors. HSBC Bank is offering up to 19X leverage, while HDFC Bank and ICICI Bank offer at least 9X leverage. These leveraged deposits are providing depositors with effective yields of around 14-15 percent, although experts suggest these funds might exit India once returns normalize. The RBI also allowed lenders to extend loans against these foreign currency deposits to further boost participation and dollar inflows, a critical factor for managing India's balance of payments and stabilizing the rupee, which Citi's Samiran Chakraborty sees in the range of 95-97/$ in the near term.
